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The Top Stocks of the Next 50 Years

Don't miss the best stocks of the next half-century.

Is it possible to determine the top-performing stocks of the next half-century? Before looking into the future, we need to consider the past. So let's start at the very beginning (as Julie Andrews might say).

Fishing in a well-stocked pondThose familiar with the work of Wharton professor Jeremy Siegel will know that dividend-paying stocks like Altria and Coca-Cola were the best performers since the beginning of the S&P 500 back in 1957.

The key to the amazing returns of these stocks was reinvested dividends. This is a theme we've covered in numerous articles here at the Fool, but that insight is worth emphasizing. If we are searching for top stocks for a time frame of 50 years, we need to look at dividend-paying stocks.

One place to begin our search might be the Mergent Dividend Achievers Select Index, whose constituents are U.S.-based companies that have all increased their annual dividend payments for 10 or more consecutive years. Since 1997, the index has returned 11% per year on average, which compares very favorably with the S&P 500's 8% over that time.

The magnificent sevenThe index contains 224 dividend-paying companies. I've put together a sample of seven of them below:

Company

Dividend Yield

Procter & Gamble (NYSE:PG)

2.3%

Johnson & Johnson (NYSE:JNJ)

2.7%

ExxonMobil (NYSE:XOM)

1.7%

General Electric (NYSE:GE)

2.9%

Wal-Mart (NYSE:WMT)

1.8%

Harley-Davidson

1.7%

Legg Mason

1.0%

Data from Yahoo! Finance as of July 3, 2007.

The first two need no introduction. In fact, they were among the five best blue chips for 2007 as voted by our Motley Fool CAPS community. General Electric, some may know, was one of the very best performers of the entire 20th century, while ExxonMobil has delivered record profits over the past few years. Wal-Mart has slumped of late, but few would count it out over the long term. Legg Mason may be a real superstar of the next few decades. Finally, Harley-Davidson is one of the most recognizable brands in America, though it may face challenges as the baby boomers trade in their street bikes for golf carts.

Will any of these be among the top stocks of the next 50 years? It's tough to say for sure, though I do believe one or two will make the list.

Looking aheadSo to recap: If history is any indication, the top stocks of the next 50 years will be businesses that have stable, growing dividends; reasonable valuations (part of the reason for Altria's outperformance, Siegel says, is that the constant threat of litigation meant it was always undervalued); and good managers.

Even if you find a top stock of the next 50 years, the only way you'll benefit from those potential gains is if you hold for the long term and let the power of reinvested dividends work in your favor.

James Early, advisor of our Motley Fool Income Investor newsletter service, scours the markets for the best performers of the next 10, 20, and yes, 50 years. Income Investor recommendations boast an average 4.1% dividend yield and, collectively, those picks are beating the market at large by seven percentage points. You can see all of his picks and research for free with a no-obligation 30-day trial. Click here to learn more about his favorite dividend-paying stocks.

This article was originally published on Jan. 26, 2007. It has been updated.

John Reeves owns shares of Johnson & Johnson and Procter & Gamble. He hopes he will be able to see how well these companies perform 50 years from now. Coca-Cola, Wal-Mart, and Legg Mason are Motley Fool Inside Value picks. Johnson & Johnson is an Income Investor choice. The Fool has a disclosure policy.